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IRS wants Stavros Center to pay $5.4M in back taxes; Amherst nonprofit for ... - GazetteNET

Google IRS Federal Income Tax - Wed, 2014-08-06 07:13

IRS wants Stavros Center to pay $5.4M in back taxes; Amherst nonprofit for ...
GazetteNET
AMHERST — Leaders of the Stavros Center for Independent Living say more than $5 million in federal tax liens filed by the Internal Revenue Service are suspected processing errors and not a result of unpaid taxes at the non-profit agency based in ...

Categories: Tax news

FAIR Tax Abolishes IRS - Then What? - Forbes

Google IRS Federal Income Tax - Wed, 2014-08-06 06:30

Forbes

FAIR Tax Abolishes IRS - Then What?
Forbes
The FairTax Plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to ...
I Inherited $20K. Do I Have to Pay Taxes?Fox Business

all 4 news articles »
Categories: Tax news

What is the Consumed Income Tax?

Tax Foundation - Wed, 2014-08-06 06:30

Since the 1940’s the United States has relied most heavily on the individual income tax, which accounts for 40 to 50 percent of total federal revenue. Income is currently defined as consumption plus change in net worth – also known as the “Haig-Simons” definition of income. This definition of income leads to the double taxation of saving and investment while it taxes current consumption only once, making our tax code non-neutral.

Our current tax base requires $775 billion dollars of tax expenditures to move toward tax neutrality. Even with such large modifications to the tax base we still double tax capital gains and many types of interest income, among others. Piecemeal modification of the tax code through tax expenditures is an imperfect remedy because it introduces unnecessary complexity and further distortions. 

In contrast to our current tax system, a consumed income tax achieves neutrality between current consumption and future consumption (savings and investment) by taxing each dollar of income once. A consumed income tax redefines the tax base to tax only consumption.

All income is either current consumption or future consumption. By not taxing future consumption (savings), individuals are able to invest their saving until they are ready to spend it. The investment of savings puts that money in the hands of the productive economy, whether in the form of a loan for a home or the purchase of a piece of equipment for an agriculture business.

IRAs and Roth IRAs provide a good example of the structure and function of a neutral consumption tax. Individuals using Roth IRA retirement accounts pay taxes on earned income whether it is spent or saved.  When the investor withdraws their savings, the gains from investment are not taxed.

Traditional IRAs provide the same economic treatment but the equation is flipped. Under traditional IRAs, an individual pays no taxes when the income is earned, but instead pays taxes on any withdrawal from their account, including taxes on any gains from investment.

In both cases, the tax treats saving and investment neutrally in regard to consumption. Giving all income the same treatment as IRAs would create a consumed income tax.

Our current tax regime discourages future investment and incentivizes current consumption. Taxing all economic activity neutrally would remove the disincentive to save and result in more saving and investment.

Saving and investment are the engine that grows the economy by supplying the tools for future innovation and productivity. The consumed income tax would be a boon for economic growth. 

Categories: Tax news

The U.K.'s Inversion Experiences are a Good Lesson for the U.S.

Tax Foundation - Wed, 2014-08-06 06:00

If there is one thing that Americans are not good at it is learning lessons from the experiences of other countries. We tend to look upon issues and events as unique to the American experience and struggle to find our own solutions, often failing to realize that other countries have suffered similar problems and have already discovered viable remedies.

So it is with the latest “wave” of corporate inversions. To read this morning’s latest article on the trend in the Washington Post, “U.S. officials gird for rash of corporate expatriations,” you would think this is a uniquely American problem with its own set of political dynamics. Hardly.

The United Kingdom went through a similar experience less than a decade ago and, after some brief handwringing, acted decisively to reform their tax system in a manner that not only solved the problem, but has made the U.K. a destination for U.S. corporate inversions.

Here is how we summarized their experience in a 2011 study, “10 Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings”:

Britain’s worldwide tax system produced a different set of consequences than Japan’s. Because the European Union allows capital to move as freely between the member states as it moves among the 50 U.S. states, more than a dozen British multinational firms chose to move their headquarters to countries with more favorable tax climates to protect their foreign earnings from the U.K. tax code.

The common fact pattern for each of these companies was that they derived roughly 75 percent of their profits from outside the U.K., yet the British worldwide tax system subjected their foreign earnings to U.K. taxes. Even though the U.K. corporate tax rate was 28 percent at the time, it was still higher than the European Union average. Thus, the companies felt that the only way to protect the majority of their earnings from U.K. tax was to move to a low-tax country, such as Ireland, or a country with both lower taxes and a worldwide tax system such as the Netherlands or Switzerland.

Shocked by these trends, the British government began implementing changes to their international tax rules to make the system more friendly to global businesses. The recently released U.K. budget includes changes in the Controlled Foreign Company (CFC) rules for 2012 "towards a more territorial corporate tax system that reflects the global reality of modern business. The interim improvements are designed to make the current CFC rules easier to operate and, where possible, to increase competitiveness."[1]

On the day after the government released its budget, two of those expatriate firms announced that they would consider moving back to England.[2]

Ironically, the pharmaceutical firm Shire was one of those U.K. firms that fled to Ireland. [We blogged on the exodus of U.K. firms here and here.] Shire is now the merger partner of the Illinois-based company AbbVie, which announced its inversion plans this year. You have to wonder if the U.S. had cut its corporate tax rate and moved to a territorial tax system years ago whether companies like Shire would be looking to merge with U.S. firms and move their headquarters here.

At this point, we probably won’t know until after the 2016 presidential election.

 

 


[1] HM Revenue & Customs, "Overview of Tax Legislation and Rates," March 23, 2011, p. A71. http://www.hmrc.gov.uk/budget2011/index.htm

[2] Steve McGrath, "WPP, publisher may end tax exile," The Wall Street Journal, March 25-27, 2011.

 

Categories: Tax news

LEGAL POINTERS | Applying for tax-exempt status - Queen Anne News

Google IRS Federal Income Tax - Tue, 2014-08-05 15:50

LEGAL POINTERS | Applying for tax-exempt status
Queen Anne News
Another important concept is that once you apply for and obtain your tax-exempt status with the IRS (federal taxes), you will still be subject to state and local taxes, unless an exemption exists. Some states track the federal tax-exempt status (mostly ...

Categories: Tax news

LEGAL POINTERS | Applying for tax-exempt status - Queen Anne and Mangolia News

Google IRS Federal Income Tax - Tue, 2014-08-05 15:48

BenefitsPro

LEGAL POINTERS | Applying for tax-exempt status
Queen Anne and Mangolia News
Another important concept is that once you apply for and obtain your tax-exempt status with the IRS (federal taxes), you will still be subject to state and local taxes, unless an exemption exists. Some states track the federal tax-exempt status (mostly ...
IRS clarifies same-sex spousal health coverageBenefitsPro
U.S. watchdog gives IRS high marks on Obamacare eligibility dataJamestown Sun
News You Can Use: Don't Auto-Renew Your Obamacare PolicyMother Jones

all 36 news articles »
Categories: Tax news

U.S. watchdog gives IRS high marks on Obamacare eligibility data

Yahoo Tax - Tue, 2014-08-05 15:12

The U.S. Internal Revenue Service has provided nearly accurate information on eligibility data for consumers who sought subsidized health coverage through Obamacare's private insurance exchanges, a federal watchdog said on Tuesday. A report released by the Treasury Inspector General for Tax Administration said data on consumer income and family size that the IRS sent to healthcare exchanges last October was accurate in 99.97 percent of cases. The data was used to determine whether insurance applicants were eligible to purchase coverage through the exchanges during an initial six-month open enrollment period, which ended in March. The report also said the agency's accuracy rate stood at 100 percent when it came to calculating federal tax credits that help cover insurance premiums for families earning up to 400 percent of the federal poverty line, or $95,400 per year for a family of four.


Categories: Tax news

IRS Issues DING Guidance - WealthManagement.com

Google IRS Federal Income Tax - Tue, 2014-08-05 10:19

IRS Issues DING Guidance
WealthManagement.com
Incomplete non-grantor trusts are separate taxpayers for income tax purposes and are structured so that most transfers to and distributions from these trusts are incomplete gifts for federal gift tax purposes. They're frequently formed in states with ...

Categories: Tax news

Material Participation Of Trusts And Estates: Mattie Carter Trust Case - Forbes

Google IRS Federal Income Tax - Tue, 2014-08-05 08:00

Material Participation Of Trusts And Estates: Mattie Carter Trust Case
Forbes
1411 imposes the 3.8-percent Net Investment Income Tax (NIIT) on net investment income (NII) for individuals, trusts and estates. ... This distinction is important because it forms a significant part of the IRS's position regarding material ...

Categories: Tax news

More Perspective on Inversions: Not a Threat to the Tax Base but the Face of U.S. Uncompetiveness

Tax Foundation - Tue, 2014-08-05 08:00

In recent weeks there has been an excessive amount of hand-wringing and gnashing of teeth about corporate inversions. The comments range from the White House calling these companies unpatriotic to reporters claiming that inversions are eroding the corporate tax base.

It is time for a little perspective.

First, while the number of companies moving their headquarters abroad has increased in recent years, the numbers are very small compared to the 1.6 million corporations in the U.S.—of which roughly 5,000 are publicly traded. According to the Congressional Research Service, just five companies moved their headquarters abroad in 2013, down from nine in 2012. This year, seven companies have taken steps to merge with a foreign-based company and move their headquarters abroad.

So all this hysteria is over the fact that 0.1 percent of all publicly traded U.S. firms moved their headquarters to another country. The nearby chart shows the number of inversions annually since 1983. As Congressman Sander Levin (D-MI) illustrates on his website, there have been 47 corporate inversions over the past decade. Even so, this ten year figure represents less than 1 percent of all publicly traded companies and 0.003 percent of all U.S. corporations. Hardly a tidal wave of expatriations.

Now, what about the tax base? In a recent Washington Post article, BusinessWeek’s Allan Sloan says that “All of this threatens to undermine our tax base, with projected losses in the billions.” Sloan endorses legislation written by Sander Levin and his brother Michigan Senator Carl Levin, the “Stop Corporate Inversions Act of 2014” (H.R. 4679). The bill would supposedly save the Treasury $19 billion over ten years by limiting inversions to deals where the U.S. purchaser of a foreign entity must be 50 percent of the new company, unlike today where the U.S. firm can be 80 percent of the new company.

If this legislation is meant to protect the U.S. corporate tax base, then the erosion threat can’t be that bad. The Congressional Budget Office currently projects corporate tax revenues will total $4.8 trillion over the next ten years. Thus, $19 billion represents a savings of 0.4 percent of those projected corporate tax revenues over a decade. In Washington, that is a rounding error.

The reason inversions are getting so much attention today, even though they are few in number and not a threat to the tax base, is that they put a face on what has until now been an abstraction in the political debate—the fact that the U.S. has the least competitive corporate tax rate and international tax regime in the industrialized world. People tend not to take storm warnings seriously until the first tree blows down.

And the reason for the over-the-top reactions from the White House, and lawmakers like the Levin brothers, is that inversions are an embarrassing reminder that their world view—which says that taxes don’t matter—is fundamentally wrong. Reality is a hard pill to swallow.

 

Categories: Tax news

More Perspective on Inversions: Not a Threat to the Tax Base but a Face of the Problem of U.S. Uncompetiveness

Tax Foundation - Tue, 2014-08-05 08:00

In recent weeks there has been an excessive amount of hand-wringing and gnashing of teeth about corporate inversions. The comments range from the White House calling these companies unpatriotic to reporters claiming that inversions are eroding the corporate tax base.

It is time for a little perspective.

First, while the number of companies moving their headquarters abroad has increased in recent years, the numbers are very small compared to the 1.6 million corporations in the U.S.—of which roughly 5,000 are publicly traded. According to the Congressional Research Service, just five companies moved their headquarters abroad in 2013, down from nine in 2012. This year, seven companies have taken steps to merge with a foreign-based company and move their headquarters abroad.

So all this hysteria is over the fact that 0.1 percent of all publicly traded U.S. firms moved their headquarters to another country. The nearby chart shows the number of inversions annually since 1983. As Congressman Sander Levin (D-MI) illustrates on his website, there have been 47 corporate inversions over the past decade. Even so, this ten year figure represents less than 1 percent of all publicly traded companies and 0.003 percent of all U.S. corporations. Hardly a tidal wave of expatriations.

Now, what about the tax base? In a recent Washington Post article, BusinessWeek’s Allan Sloan says that “All of this threatens to undermine our tax base, with projected losses in the billions.” Sloan endorses legislation written by Sander Levin and his brother Michigan Senator Carl Levin, the “Stop Corporate Inversions Act of 2014” (H.R. 4679). The bill would supposedly save the Treasury $19 billion over ten years by limiting inversions to deals where the U.S. purchaser of a foreign entity must be 50 percent of the new company, unlike today where the U.S. firm can be 80 percent of the new company.

If this legislation is meant to protect the U.S. corporate tax base, then the erosion threat can’t be that bad. The Congressional Budget Office currently projects corporate tax revenues will total $4.8 trillion over the next ten years. Thus, $19 billion represents a savings of 0.4 percent of those projected corporate tax revenues over a decade. In Washington, that is a rounding error.

The reason inversions are getting so much attention today, even though they are few in number and not a threat to the tax base, is that they put a face on what has until now been an abstraction in the political debate—the fact that the U.S. has the least competitive corporate tax rate and international tax regime in the industrialized world. People tend not to take storm warnings seriously until the first tree blows down.

And the reason for the over-the-top reactions from the White House, and lawmakers like the Levin brothers, is that inversions are an embarrassing reminder that their world view—which says that taxes don’t matter—is fundamentally wrong. Reality is a hard pill to swallow.

 

Categories: Tax news

When Did Your State Adopt Its Tax on Distilled Spirits?

Tax Foundation - Tue, 2014-08-05 06:45

This week’s tax map takes a look at when each state first adopted its distilled spirits excise tax, if it has one. Federal taxation of alcohol dates back to the earliest years of the republic but state excise taxes all followed swiftly on the heels of the Twenty-first Amendment. With the end of federal alcohol prohibition in 1933, states retained the authority to permit or prohibit alcohol sales. Most states quickly legalized, either as “liquor control states” shown in gray, or with private liquor sales, like the color-coded states. No state legalized prohibition without swiftly applying high taxes to liquor, though states varied in when they ended prohibition, with Oklahoma remaining a constitutionally “dry” state until 1959. Among states that adopted government liquor sales monopolies after ending prohibition, only Washington State has since privatized liquor sales.

(Click on the map to enlarge it. Reposting policy)

In 1791, almost immediately after the Constitution was ratified, Alexander Hamilton pushed for a national excise tax on liquor as a means of raising revenue to pay down the national debt. Hamilton believed a tax on distilled spirits would be useful both because they were widely consumed, and thus represented a fairly large tax base, but also because he perceived distilled spirits to be a luxury good, and thus a tax might be fairly progressive. Many social reformers also believed distilled spirits were damaging to society, and so looked favorably on higher taxes. These arguments for excise taxes, that they tax socially damaging goods, or luxury goods, or serve as advantageous and politically popular revenue sources, continue today in various forms.

In reality, the tax turned out to be disproportionately burdensome on poor- and middle-income farmers living in the territories and new states beyond the Appalachian mountains. The traditional distilled drinks of “Western states” (such as Bourbon from my home state of Kentucky, or Tennessee Whiskey) arose as ways of turning grain into a product that could be easily and profitably sold in the urban centers of the east. The new tax, then, injured these grain farmers and western pioneers. This led to the so-called Whiskey Rebellion, wherein disgruntled westerners rose up against the government, only to be swiftly crushed by George Washington and almost 13,000 militia. Throughout the 19th century, federal excise taxes on distilled spirits remained a major revenue item, so large that prohibition of alcohol, while politically popular, was considered impossible until after the Sixteenth Amendment permitted an income tax in 1913.

States also taxed alcohol, and especially distilled spirits. However, prior to prohibition, state alcohol taxation tended to be occupationally-focused, requiring licensing by producers and sellers of alcohol at an approximately fixed rate, rather than a strict excise tax. Even so, these taxes were a large component of many states’ tax collections.

There were also some states that, far from taxing alcohol, enacted state-level prohibition far earlier than the nation on the whole. The first state to enact prohibition lasting until national prohibition began was Kansas, in 1880, and the state did not repeal until 1948, giving it the longest time under prohibition of any state in the union. Other states with early prohibition regimes include Maine, Vermont, Iowa, North Dakota, Mississippi, Alabama, Georgia, Oklahoma, North Carolina, Tennessee, Oregon, West Virginia, Washington, Montana, and others. Many of these early-prohibition states became liquor control states after the end of national prohibition. Liquor control states also tend to have higher effective taxes on distilled spirits.

Oklahoma’s last-in-the-nation end of prohibition came after decades of referendums as urban voters in favor of legalization repeatedly failed to defeat rural voters opposed to it. Finally, however, legalization won out as Oklahoma’s revenue needs increased, and legalization was seen as an alternative to other taxes. Perhaps more interestingly, the pro-legalization Governor Howard Edmondson (D) launched an aggressive enforcement campaign, raiding establishments illicitly serving alcohol and enforcing Oklahoma’s laws with unprecedented consistency. Even advocates of prohibition were taken aback by the drastic consequences of full enforcement of the laws they claimed to support, and so the “dry” coalition collapsed.

Since the end of prohibition, state liquor policies have been remarkably stable. While rates and markups in privatized and control states have varied, only Washington State has made the switch from liquor control to privatization. As part of that change, the state levied new taxes and fees on distilled spirits, leading to even higher liquor prices. Indeed, throughout the history of liquor taxation in the United States, decreasing control or regulation has in almost all cases been paired with (and often motivated by) increased excise taxes.

Read more on alcohol excise taxes here.

Follow Lyman and Richard on Twitter.

Categories: Tax news

Homeowner Association IRS Ruling Highlights Schizophrenic Nature Of ... - Forbes

Google IRS Federal Income Tax - Tue, 2014-08-05 06:15

Homeowner Association IRS Ruling Highlights Schizophrenic Nature Of ...
Forbes
Unless they have vast reserves earning significant investment income, homeowners associations can avoid any significant tax liability by filing Form 1120H, which allows the organization to exclude assessments. Despite that option, some homeowners ...

Categories: Tax news

Jury convicts 'sovereign citizen' of false lien conspiracy, skirting tax laws - Lincoln Journal Star

Google IRS Federal Income Tax - Mon, 2014-08-04 21:05

Jury convicts 'sovereign citizen' of false lien conspiracy, skirting tax laws
Lincoln Journal Star
Federal jurors in Omaha convicted a Sarpy County woman Friday for filing false liens against two federal judges, Nebraska's U.S. Attorney and two of her deputies and an Internal Revenue Service special agent, the U.S. Justice Department said Monday ...

and more »
Categories: Tax news

Everything You Need to Know About Corporate Inversions

Tax Foundation - Mon, 2014-08-04 13:15

Recently, Congress and the media have been abuzz over “corporate inversions.” Some worry that the recent wave of inversions will harm the U.S. and its tax base. Others point to them as evidence of a broken U.S. corporate tax code.

In order to help you sort through the chatter, here are some common questions and answers about corporate inversions, how they interact with our tax system, and why they matter:

What is an inversion?

In its simplest form, an inversion is simply the process by which a corporate entity, established in another country, buys an established American company. The transaction takes place when a foreign corporation purchases either the shares or assets of a domestic corporation or a when a U.S. corporation purchases the share or assets of a foreign corporation. Some inversions involve the purchase of both the shares of ownership and the corporate assets. The shareholders of the domestic company typically become shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United States to another country. An inversion typically does not change the operational structure or functional location of a company.

How does an inversion benefit the U.S. corporation?

The change in legal residence from the United States to another country allows the company to take advantage of the more favorable tax treatment of the new home country. The most obvious benefit is that most countries do not have a worldwide corporate income tax system. The United States taxes income earned by U.S. corporations no matter where they earn that income, domestically or abroad.

For example, if a subsidiary of a U.S. firm earns $100 in profits in England, it pays the United Kingdom corporate income tax rate of 21 percent (or $21) on those profits. When those profits are brought back to the United States, an additional tax equal to the difference between the U.S. tax rate of 35 percent and the U.K. corporate rate of 21 percent ($14 in this case) is collected by the IRS. Between the two nations, the U.S. firm will have paid a total of $35, or 35 percent, in taxes on its foreign profits.

Most countries have what are called territorial systems that only tax income earned in their border. This means that any profits earned inside a country are taxed by that country and any profits earned outside of a country is not taxed. So if the U.S. corporation in the above example relocates to the United Kingdom, it would no longer be liable for that additional U.S. tax on its foreign profits.

It is also important to point out that a U.S. corporation that inverts will still need to pay tax on any income that it earned in the United States.

What is the impact of an inversion on employees?

A corporate inversion does not typically change the operational structure of a company. In most cases, an inversion simply means the addition of a small office in the company’s new foreign "home." Therefore, a re-incorporation rarely, if ever, leads to the loss of American jobs. In fact, to the extent that a corporate inversion leads to significant savings from a lower tax burden, employees may benefit through increased wages or more jobs.

How common are corporate inversions?

According to the Congressional Research Service, there have been approximately 76 companies that have either inverted or are planning to do so since 1983. 14 of those planned inversions have occurred in 2014 alone. 47 inversions have happened in past decade.

While the acceleration of corporate inversions sounds troubling, the number of inversions is actually really low compared to the total number of C corporations in the United States. According to most recent IRS statistics there are 1.6 million C corporations in the United States, a little fewer than 4,000 of them are publicly traded.

What is the impact of corporate inversions on federal tax collections?

If a corporation is able to invert, it would no longer be considered a U.S. corporation. As a result, it would no longer be liable for the U.S. tax corporate income tax on its income earned outside of the United States. For the corporation this means a tax savings, but for the Treasury it means lower revenues.

Judging by the rhetoric on the issue, one would assume that these inversions will lead to a large swath of corporate income being untaxed by the U.S. This really isn’t the case.

According to the JCT analysis of the “Stop Corporate Inversions Act of 2014,” a bill that aims to limit the ability of corporations to invert for tax purposes, this bill will raise $20 billion over the next ten years. Compare this to the $4.5 trillion the CBO predicts the corporate income tax will raise over the same period. In other words, corporate inversions are predicted to cost 0.5 percent of the corporate tax base over ten years.

Are corporate inversions a form of tax evasion?

Tax evasion is the avoidance of taxes through illegal means such as misrepresenting income on a tax return. Inversions are a legal means by which a company lowers its tax bill. When a company’s shareholders choose to re-incorporate in another country, it is a business decision like thousands of others that executives and shareholders must make every year. It can be thought of as a move similar a business relocating to Texas from California.

What is the underlying cause of the recent trend in corporate inversions?

As global operations become an increasingly important aspect of business, multinational corporations are under increasing pressure to lower their overall tax burden. There are two specific problems with the current U.S. corporate income tax that corporations are attempting to overcome through re-incorporation transactions:

The United States corporate income tax rate, 35 percent (39.1 percent combined with state rates) on corporate income, is relatively high by international standards. The U.S. corporate income tax rate is the highest rate among the 34 countries of the Organization for Economic Cooperation and Development (OECD). The fact that inversions have been accelerating reflects the fact that the U.S. is actually falling farther behind as time as gone on.

 

The second reason, is that the United States taxes domestic companies on their world-wide income, while most other countries tax their domestic companies only on domestically-earned income. This means that U.S. companies face a marginal tax rate of at least 35 percent on every dollar earned whether earned domestically or abroad, while their competitors do not.

Does re-incorporation lead to large capital gains taxes for shareholders, including employee-shareholders?

If a company’s re-incorporation is accomplished through a stock transaction, in which the overseas corporation purchases significantly all the shares of ownership in the domestic corporation, existing shareholders (whether or not they become shareowners in the new, foreign corporation) may face capital gains taxation at the time of inversion. This is due to section 367 of the U.S. Internal Revenue Code, added in 1998, which requires shareholders to recognize a gain on the exchange of stock for tax purposes.

This provision was added to the code as an "exit toll" with the intention of making inversions less palatable to U.S. corporations. Typically, corporate executives anticipate that the savings in corporate taxes from the inversion over the long-term is of greater value than the immediate capital gains hit. Thus, in theory, an inverted corporation’s stock should appreciate in value enough to overcome the wealth lost in capital gains tax.

One reason many corporations are considering re-incorporation in another country now is the relatively depressed value of their stock, due in part to the general drop in the broader equity markets. This fact means that shareholder losses to capital gains taxation on the transaction are minimized.

Categories: Tax news

Obamacare and Extenders: Examining the Draft 1040 for 2014

Tax Foundation - Mon, 2014-08-04 08:45

The IRS last month posted drafts of its new forms for the 2014 tax year. These should by no means be considered complete – Congress can often keep meddling with the tax code deep into December – but looking at the draft 1040 can remind us of the changes ahead. Here are four lines from the 2014 1040 that reflect changes.

Expiring Provisions:

Line 23 - “Reserved:” This line reflects the potential expiration of the tax deduction for certain expenses of elementary and secondary school teachers. It is a modest little deduction for teacher out-of-pocket expenses spent on education supplies for work. Obviously, this problem would better be solved by schools simply providing the teachers with the necessary supplies, but the deduction has a decent chance of being extended again.

Line 34 – “Reserved:” This line reflects the tuition deduction, which is also slated to expire. It is perhaps more likely to leave the tax code, given its redundancy with the American Opportunity Credit. Awkwardly, you were only allowed to take one or the other of these, meaning that some people had to calculate their taxes twice, once with each option, in order to compare. Given that complexity, and given that the tax code isn’t a particularly good way of making college more affordable anyway, this is probably a welcome change.

Obamacare Additions:

Line 46 – “Excess advance premium tax credit repayment. Attach form 8962:” This line is for those taxpayers who received too large of a premium subsidy. The Obamacare premium subsidies have two characteristics that make them unique among refundable tax credits. The first is that they are paid to insurers on a taxpayer’s behalf, not paid to the taxpayer. The second is that they are paid during the year, not at the time taxes are filed. If the amount paid out turns out to be wrong (for example, if the taxpayer doesn’t correctly guess his income when applying for the subsidies) the taxpayer will be on the hook for returning the excess money to the IRS.

Line 61 – “Health care: individual responsibility (see instructions):” This is the much-talked-about individual mandate. The fee for not having health insurance in 2014 is 1% of your yearly income or $95, whichever is higher. The payment amount will rise in future years. While the IRS instructions are not yet available, the instructions will likely cover that calculation. The instructions will also cover the menagerie of exemptions that the Department of Health and Human Services have put forth.

While the lines of the 1040 pertaining to Obamacare are likely to be very small in absolute dollar terms for most taxpayers, they do show that the broad structure of the bill is finally coming online. Most of the real money involved, though - an amount eventually expected to reach $100 billion per year - will come through the subsidies paid to insurers, not the 1040.

Categories: Tax news

Covington snags senior IRS official - The Hill

Google IRS Federal Income Tax - Mon, 2014-08-04 07:48

Covington snags senior IRS official
The Hill
At Covington, he'll advise companies on much of what he focused on at the IRS, including transfer pricing and a range of other federal income tax issues. “I believe I can help the firm position itself as a global trouble-shooter and risk manager for ...
Former IRS Official Sam Maruca Rejoins Covington's Tax PracticePR Newswire UK (press release)
Could Obama use the pen to tackle inversions Maruca heads to the private ...Politico

all 6 news articles »
Categories: Tax news

Former IRS Official Sam Maruca Rejoins Covington's Tax Practice - Insurance News Net

Google IRS Federal Income Tax - Mon, 2014-08-04 06:09

Former IRS Official Sam Maruca Rejoins Covington's Tax Practice
Insurance News Net
Mr. Maruca has practiced in the field of federal income tax for more than 30 years. He has represented clients in numerous business sectors, including information technology, pharmaceutical, biotechnology, communications, specialty materials and retail.

and more »
Categories: Tax news

Identity thieves exploit changes in federal law to file phony tax returns - SunHerald.com

Google IRS Federal Income Tax - Mon, 2014-08-04 06:03

Identity thieves exploit changes in federal law to file phony tax returns
SunHerald.com
She was referring to a significant change in federal tax law in 2013, enacted to accommodate same-sex taxpayers. Last August, the IRS and U.S. Treasury announced that legally married same-sex couples could now file their federal income taxes as married ...

and more »
Categories: Tax news

Identity thieves exploit changes in federal law to file phony tax returns - News & Observer

Google IRS Federal Income Tax - Mon, 2014-08-04 05:20

Identity thieves exploit changes in federal law to file phony tax returns
News & Observer
She was referring to a significant change in federal tax law in 2013, enacted to accommodate same-sex taxpayers. Last August, the IRS and U.S. Treasury announced that legally married same-sex couples could now file their federal income taxes as married ...

and more »
Categories: Tax news
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